Using Your Match More Effectively
Are you looking for ways to get the most results from your employer matching contribution money? Recent research from the National Bureau of Economic Research (NBER) provides some ways you may be able to more effectively leverage matching contributions into increased employee contributions.
It’s the Threshold, Not the Percentage
One NBER study1 suggests that raising the threshold for employer matching contributions can do more to encourage employees to increase contributions than raising the match rate. For example, instead of a 50% match on the first 6% of compensation, you might match 25% and raise the threshold to the first 12% of compensation. Because many employees try to contribute enough to receive their employer’s full matching contribution, you may be able to increase employee contributions at no extra cost to your company.
Cue Participants into Contributing More
A second NBER study2 tested contribution “cues” that plan sponsors might use in their plan communications, such as “you could increase your contribution rate by 1% [3%, 10%, or 20%] and get more of the match money for which you’re eligible.” The study concluded that higher numerical cues (such as the 10% and 20% used in the study) tend to increase contributions, while lower ones can actually decrease contribution rates.
You may want to review your communication materials to make sure they aren’t inadvertently encouraging low contribution rates and consider adding messages to encourage higher contributions to regular employee communications, such as statements.
1 Matching Contributions and Savings Outcomes: A Behavioral Economics Perspective, Brigitte C. Madrian, National Bureau of Economic Research, July 2012
2 Small Cues Change Savings Choices, James J. Choi, Emily Haisley, Jennifer Kurkoski, Cade Massey, National Bureau of Economic Research, February 2012
Recent research . . . provides some ways you may be able to more effectively leverage matching contributions into increased employee contributions.